BP holds its ground in spill case

Rulings just ahead may lay out oil giant's penalties

Oil from the BP Deepwater Horizon spill washes ashore in Orange Beach, Ala., the summer after the disaster.

Oil from the BP Deepwater Horizon spill washes ashore in Orange Beach, Ala., the summer after the disaster.

Photo: Dave Martin, FRE

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A dead crab lies in an area of marsh that had been cleaned of oil. The Louisiana Department of Wildlife & Fisheries held a press tour a year after the Gulf spill.

A dead crab lies in an area of marsh that had been cleaned of oil. The Louisiana Department of Wildlife & Fisheries held a press tour a year after the Gulf spill.

Photo: James Nielsen, Staff

BP holds its ground in spill case

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The legal clash over the 2010 Gulf of Mexico oil spill is entering a key chapter that could give BP an idea of just how large a hole the disaster will burn in its wallet.

It appears unlikely that BP and the U.S. government will settle the multibillion-dollar dispute before a federal judge hands down several rulings in a civil case that will determine how much BP owes in Clean Water Act penalties.

The case combines a tangle of litigation arising from the spill, and U.S. District Judge Carl Barbier of New Orleans has heard testimony in two phases of a trial in the case.

The British oil giant and the U.S. government filed post-trial briefs late last month reasserting arguments about the amount of oil that spilled into the Gulf of Mexico, the subject of the second of the two court proceedings last year.

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And in recent months, BP's shift to hardline tactics - including criticism of the judge and advertising attacking some damage claims- suggests the company isn't inclined to budge.

"They seem more willing to litigate and less willing to agree to anything," said Carl Tobias, a law professor at the University of Richmond who studies federal courts and has followed the legal fallout from the Gulf oil spill. "There's a lot of money at stake, and maybe they're just willing to roll the dice."

Barbier's rulings on how much oil spilled and other issues, including whether BP was grossly negligent and how to apportion fault among participants in the Macondo well project, will trigger penalty proceedings that could set the company's environmental fines up to $18 billion. That's $6 billion more than the company collected in profit in 2012.

Biggest producer then

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BP was the world's largest oil producer when its Macondo well blew out on April 20, 2010, killing 11 workers on the Deepwater Horizon drilling rig and erasing more than $100 billion of BP's market value overnight. Millions of gallons of crude reached the Gulf of Mexico and its shores, devastating fishing, tourism and other businesses.

Four years later, a slimmed-down BP has tried to appease shareholders by shedding assets and fighting tough legal battles, but the company's stock still hasn't recovered to its level before the disaster.

Its oil production has fallen 17 percent over the years, and the U.S. Environmental Protection Agency has recommended barring BP from acquiring new government contracts and oil leases in the Gulf.

Making peace with authorities could soothe Wall Street angst and help restore its brand, but BP appears to harbor too many high-stakes disagreements with the federal government.

"Neither seems to be willing to compromise on any issue, and each is confident they can obtain a ruling in their favor," said Blaine LeCesne, a Loyola University law professor who has followed the case.

Silence from judge

Barbier is expected to make his first rulings early this year on questions raised in the trial proceedings last year in New Orleans, but he has not scheduled any hearings.

The judge's silence so far has puzzled some legal experts. Breaking up the civil case into multiple phases makes sense if Barbier hands down fragmented rulings in an effort to tempt BP into a settlement, said John Levy, an attorney at Montgomery McCracken in New Jersey.

"That helps the parties see which way things are going to turn out," Levy said. "It seems like both sides are dug in."

In court documents last month, the federal government maintained its argument that more than 4 million barrels flowed out of the Macondo well a mile below the surface of the ocean.

BP replied that the spill was 2.45 million barrels, and that the government relied on erroneous assumptions and ignored other data to come up with its estimate.

The government is clinging to a number it developed when its scientists "acquiesced to demands from political appointees to develop an estimate in just a few days," BP spokesman Geoff Morrell said in a written statement.

Through "much more thorough and scientifically sound analyses," BP's experts found that 3.26 million barrels were released, Morrell said. BP and the government agree 810,000 barrels were collected before they entered the Gulf and will not be used in calculating fines.

Under the Clean Water Act, Barbier could set the fines at a maximum of $4,300 per barrel if he finds that BP was grossly negligent in its conduct leading up to the spill. The fines would be set at $1,100 per barrel or less if the finding is simple negligence.

The Clean Water Act defines simple negligence as failure to exercise reasonable care and gross negligence as substantial deviation from reasonable care. But there are few court precedents to help Barbier in ruling on an unprecedented array of circumstances, parties and claims.

Setting precedents

"There's not a lot of law out there; that's why the whole community is so focused on this case," Levy of Montgomery McCracken said. "Barbier is making law with every decision. It's going to set precedents, no doubt about it."

But even after Barbier hands down his decisions, the company could endure other oil spill costs for years. BP still faces potential state-level environmental fines and federal penalties stemming from the National Resource Damage Assessment, which could cost several billion dollars and take years to unravel, LeCesne said.

"I think they're only halfway there in terms of liability: it's going to be spread out over many years," LeCesne said, pegging the company's total oil spill costs from $60 billion to $80 billion.

Billions set aside

The company's current market capitalization is $149 billion, and regulatory documents show BP has set aside $42.5 billion for spill-related costs.

Almost two years ago, the company agreed to a class action settlement with Gulf Coast residents claiming economic damages from the spill and has paid $3.8 billion so far in settlement payments, according to a court-appointed claims administrator.

But in recent months BP has challenged some of the claims administrator's decisions and Barbier's rulings upholding them, alleging that payments are going to people who suffered no damages. The issue is pending.

But even if BP wins that battle, it still will owe an undetermined amount under the settlement, and that liability is probably a relatively small part of what BP ultimately will pay, said Tobias.